Thinking About a Side Gig? Here’s What It Takes To Be Successful

When building wealth, there are two levers you can pull: saving and earning. In the financial planning business, we tend to focus a lot on the first one. Good habits around saving are important, but that’s not the only thing you can do. Don’t ignore your ability to earn more and improve your financial situation. 

A side gig is a great way to do that.

I routinely recommend side gigs to clients when they’re trying to get their debt under control or want to bolster their savings. A side gig can help you address a specific financial challenge temporarily. Or it can be a permanent part of your financial life. The beauty of side gigs is that they’re flexible. You can turn them on and off as you need.

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A lot of people seem to agree. According to a recent survey, 39% of Americans have a side hustle. Side gigs come in many forms and there are so many possibilities. Take the example of one of my clients, who worked as a corporate accountant her entire career. For most of those 30 years, she also sold cosmetics. She loved it because it was so different from her day job and let her spend time interacting with people instead of spreadsheets.

Another client loved to bake. She partnered with a local bakery to make gender-reveal cakes. Since there aren’t that many requests for these types of cakes, she never felt overworked, and she could say no if it didn’t fit into her schedule. These clients handled their side gigs right. I wish more people would approach them this way. If you’re ready to take on a side hustle, here’s what you need to keep in mind.

Pick Something You Love

When it comes to side gigs, there really is something for everyone. Side gigs let you tap into your hobbies and passions to make money. Are you a master knitter? Sell winter hats on Etsy. Love dogs? Offer your services for dog walking and sitting on Rover or Wag. Have a spare room in your home and love meeting new people? Rent it out to travelers on Airbnb.

Whatever you choose, make sure your side gig doesn’t consume you. Not only could it ruin your love for your hobbies, but it could also leave you too drained for your day job, damaging your ability to earn.

Know The Upfront Costs

For some side gigs, you’ll need to shell out some money to get up and running. For instance, if you plan to drive for Uber or Lyft, you’ll obviously need a car. If you want to host guests on Airbnb, you’ll need property. Those are hefty cash outlays. But you might not be aware that some side hustles will require you to make upfront purchases. A graphic designer might need a more powerful laptop. A freelance writer might need to pay for a website. These costs could cut into your income, at least initially.

Be Mindful of Taxes

When you’re an employee and receive a W-2 tax form, you can count on your employer to take care of withholding taxes from your paycheck. With a side gig, the burden falls on you. For starters, you must file quarterly taxes. Otherwise, you’ll owe interest and penalties on taxes you didn’t pay on time. Set up a separate account for taxes and sweep money into it each time you get paid. This way, when it’s time to pay taxes, you’ll have funds available.

Also, as a contractor who receives 1099s, you are responsible for paying the self-employment tax. The self-employment tax consists of two parts: 12.4% for Social Security and 2.9% for Medicare. Employees pay half and the employer pays half, but self-employed or contractors must pay for the full amount on their own. 

Get a Discount

When a side hustle also happens to make your own hobbies more affordable, that’s a win-win. Let’s say you’re a fitness nut and never miss a workout. Maybe you can take on a few shifts at your local gym where you’ll also get your membership covered. If you love golf, a job behind the register of the pro shop could get you time on the links. Do-it-yourselfers could get a lot of mileage from the employee discounts at Home Depot or Lowes.

Check Your Insurance

As a general rule, your personal insurance will not cover your business activities. For example, if you provide rides for money, your personal auto insurance will not cover any accidents you have while you’re on the clock. The same goes for your homeowners policy, which won’t cover damage to your property caused by a tenant.

If you perform these jobs through platforms like Uber or Lyft for ride hailing or Airbnb or short-term rentals, there is some limited insurance to cover damages, but it may not cover everything. Make sure to read the fine print and understand where the gaps are. You might need to buy additional coverage on top of what you already have to make sure you’re fully covered.

Choose Multi-level Marketing Programs Wisely

Remember those ladies driving around in their powder pink Cadillacs? They didn’t earn those wheels pushing tubes of lipstick and powder puffs. When signing up with a multi-level marketing (MLM) company, you’ll start off selling the company’s products. But the real money comes from bringing in new recruits – for each sale your recruits make, you get a percentage.  Some MLMs offer a relatively high percentage of sales that sales associates earn. But others border on pyramid schemes (which are illegal). They might even require you to buy a lot of their product upfront and pressure you to bring in new people to sell to.

MLM companies can be a good way to earn extra income if you manage them correctly. Keep these things in mind:

• Choose a product you enjoy using and can sell enthusiastically.
• Research what people actually make, compared to what the recruiting materials say could be your “potential” earnings. Sadly, the Federal Trade Commission found that 99% of MLM recruits lose money.
• Beware of how much you must spend on a starter kit. If it’s more than a few dollars, that could be a red flag.
• Pick a product for which there’s a renewable market. That’s why cosmetics and nutritional supplements are good categories because people need to buy them over and over.

Bottom Line

With inflation still higher than it’s been in years, more people are finding that their money doesn’t go quite as far as once did. A side gig is a great way to create breathing room in your budget so you can pay off debt, boost your savings and improve your standard of living. But you need to approach it carefully so that it really does bring you extra income instead of turning into a money pit.

READ MORE: 

• 8 Work-From-Home Side Hustles You Can Start Right Now
• Do A Full-Time Job And A Side-Hustle Work For You? 
• What To Know About Paying Taxes On Side-Hustle Income

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